question archive Rapid auto Transport (RAT) follows a constant payout ratio dividend policy, which required the company to pay out 30 percent of income as dividends each year
Rapid auto Transport (RAT) follows a constant payout ratio dividend policy, which required the company to pay out 30 percent of income as dividends each year
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Rapid auto Transport (RAT) follows a constant payout ratio dividend policy, which required the company to pay out 30 percent of income as dividends each year. If it wants to pay $840,000 in dividends next year, how much must RAT earn?
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Answer:
The amount RAT must earn= $2 800 000
Step-by-step explanation
If the company follows a constant payout ratio dividend policy
- Annual total dividend paid = Net Income * Dividend payout ratio
Therefore, applying the equation
$840 000= Net income * 0.30
Net income = 840 000/ 0.30
The amount RAT must earn= $2 800 000
